U.S. Consumer Confidence Fell More Than Forecast

By Bob Willis -
Sep 28, 2010

Mounting gloom over the outlook for
jobs and wages caused American consumers to lose confidence in
September, indicating spending will take time to recover.

The Conference Board’s sentiment index declined to 48.5
this month, lower than the median forecast of economists
surveyed by Bloomberg News and the weakest level since February,
according to figures from the New York-based private research
group today. Another report showed home prices cooled, hurt by a
slump in sales following the end of a government tax incentive.

Household purchases, which account for about 70 percent of
the world’s largest economy, may be constrained by a jobless
rate this is projected to average more than 9 percent through
2011. Best Buy Co. is among companies planning to use promotions
to spur sales during the year-end holidays in order to overcome
shoppers’ somber moods.

Consumers “certainly are worried about jobs,” said David Sloan, a senior economist at 4Cast Inc. in New York. They “are
facing considerable headwinds.”

The median forecast of 75 economists surveyed projected the
index would drop to 52.1. Estimates ranged from 48 to 55. The
gauge averaged 96.8 during the economic expansion that ended in
December 2007.

Home prices in 20 cities rose at a slower pace in July from
a year earlier, a report from S&P/Case-Shiller showed. The
group’s index of property values increased 3.2 percent from July
2009, the smallest year-over-year gain since March.

Credit’s Influence

The gauge is a three-month average, which means the July
data are still being influenced by transactions in May and June
that may have benefitted from a tax break worth as much as
$8,000. Sales contracts had to be signed by the end of April and
initially closed by June in order to qualify for the credit. The
closing deadline has since been extended to the end of this
month.

Unemployment, a lack of confidence and mounting
foreclosures will probably weigh on the housing market for the
rest of the year.

“Now that we’re getting data that’s starting to show some
post-tax credit information, we’re beginning to see some
weakness on the surface,” said Michael Feroli, chief U.S.
economist at JPMorgan Chase & Co. in Washington. “Sales have
come off and the concern is that you’re going to see prices
follow.”

Stocks rose, erasing losses sustained after the reports, as
investors speculated the Federal Reserve will buy debt to buoy
the economy. The Standard & Poor’s 500 Index climbed 0.4 percent
to 1,147.7 at the 4 p.m. close in New York. The yield on the 10-
year Treasury note declined to 2.46 percent from 2.53 percent
late yesterday.

Income Outlook

The Conference Board’s measures of present conditions and
expectations for the next six months both dropped, today’s
report showed. Fewer respondents thought more jobs would become
available and the share of those who expected incomes to rise
fell to the lowest since February.

Best Buy, the world’s largest consumer-electronics
retailer, said mobile phones, Internet-connected televisions and
tablet computers such as Apple Inc.’s iPad will be among its
top-selling items this holiday season.

The Richfield, Minnesota-based company released its
predictions today after conducting an online survey of almost
1,000 people in August. Best Buy plans to spur sales of phones
with a promotion that will run on Fridays, starting Oct. 1, Mike Vitelli, executive vice president, told reporters in New York.

There is reason for consumers to worry about jobs. U.S.
chief executive officers turned less optimistic in the third
quarter as fewer projected sales and hiring will improve, a
survey showed. The Business Roundtable’s economic outlook index
fell for the first time since the beginning of 2009.

“This is, and will continue to be, somewhat of a long and
uneven recovery,” Ivan G. Seidenberg, chairman of the Business
Roundtable and chief executive officer of New York-based Verizon
Communications Inc., said today in a teleconference. “We’re not
seeing a lot of major momentum develop here.”

The economy is a top issue for voters in the November
congressional elections, and polls show the public is
increasingly skeptical of President Barack Obama’s performance.

The economy grew at a 1.6 percent pace in the second
quarter, down from the 3.7 percent annual rate posted in the
first three months of the year. Economists surveyed this month
forecast growth will average 2.1 percent from July through
December.

Fed’s View

“The pace of recovery in output and employment has slowed
in recent months,” Federal Reserve policy makers said in their
statement last week after meeting on interest rates. “Household
spending is increasing gradually, but remains constrained by
high unemployment, modest income growth, lower housing wealth,
and tight credit.”

Ten of the 20 cities in the S&P/Case-Shiller index showed a
year-over-year increase in prices, led by an 11 percent gain in
San Francisco, today’s report showed. That left 10 cities
showing a decrease, up from five in June. The weakest market was
in Las Vegas, with a drop of 4.9 percent.

Housing is “bouncing along the bottom,” Karl Case, co-
f9ounder of the index said in a radio interview on “Bloomberg
Surveillance” with Tom Keene. “It’s stopped the freefall we
saw every month. I don’t think anyone is predicting it’s going
to go up very much.”